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Marico: Earnings Hit by Lower Volumes and Firming Input Prices - Views on News from Equitymaster
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  • Aug 9, 2017 - Marico: Earnings Hit by Lower Volumes and Firming Input Prices

Marico: Earnings Hit by Lower Volumes and Firming Input Prices
Aug 9, 2017

Marico Ltd has announced its results for the quarter ended June 2017. The company's revenues went down by 3.5% while net profits were down by 11.9% during the quarter as compared to a year ago.

Performance Summary
  • Marico's topline declined by over 3.5% in 1QFY18 as sales volumes were down by as much as 9% because of the Goods and Service Tax (GST) implementation. Marico's branded coconut oil portfolio - which includes brands like Parachute, Nihar and Oil of Malabar as well as Saffola refined edible oil range registered volume declines of 9% each. The company's male grooming portfolio was down by over 23% during the quarter. The company attributed lower volumes to de-stocking ahead of GST as well as steep pipeline correction.
  • Despite a de-growth in volumes, the company could register market share gains across all key franchises. Around 90% of the company's product portfolio showed gains in market shares.
    Financial Performance Snapshot
    Rs(m) 1QFY17 1QFY18 Change
    Revenues 17,543 16,924 -3.5%
    Expenditure 13,803 13,681 -0.9%
    Operating profit (EBDITA) 3,739 3,243 -13.3%
    EBDITA margin (%) 21.3% 19.2% -2.2%
    Other income 275 229 -16.8%
    Interest 54 35 -35.1%
    Depreciation 208 211 1.7%
    Profit before tax 3,753.4 3,225.90 -14.1%
    Extraordinary inc/(exp) 0 0  
    Share of profit/(loss) of joint ventures -2.1 -1  
    Tax 1,072 866 -19.2%
    Effective tax rate 29% 27%  
    Net Profit after tax/(loss) 2,679 2,359 -11.9%
    Net profit margin (%) 15.3% 13.9%  
    No. of shares (m)   1,290.40  
    Diluted earnings per share (Rs)*   10.19  
    Price to earnings ratio (x)*   32.7  
    *trailing twelve months
  • On the international business front, Marico's business has achieved turnover of US$ 56 million, a growth of 6% (constant currency terms) in this quarter. The company's biggest market - Bangladesh continued its stellar growth and posted a constant currency growth of 12% during the quarter. Marico's Middle East and North Africa (MENA) business however, continued to suffer and declined by 14% (constant currency basis) in the quarter on the back of economic downturn in the region.
  • On the cost front, the average market price of copra - the company's principal raw material was up by 7% sequentially and by 69% Y-o-Y. The annual crop in FY 2018 is expected to be lower by around 20% due the deficient monsoon of 2017. The company believes the costs of copra will continue to remain on the higher side during the subsequent quarters. The market price of the other key inputs, Rice Bran oil was down 5% and Liquid Paraffin (LP) was up 21% during the quarter as compared to Q1FY17. The raw material cost-to-sales ratio increased above 50% in 1QFY18.
  • Marico's operating profit margin stood at 19.2%, lower than the 21.3% in the same period in the previous year. The margins saw a decrease this quarter due to significant increase in the input costs but company chose to hold back the price increases in its Parachute portfolio.
  • Despite rising input costs, Marico is holding back price hikes in the wake of the GST rollout. If the prices continue to firm up, it will revisit the prices in near term considering the inflation in commodity prices.
  • The company's net profit fell 11.9% in the quarter on the back of a decline in volumes as well as high input costs which impacted operating profit margins. A decline in other income over the quarter could not cushion the downfall in operating profits.

    Cost break-up 1QFY17 1QFY18 % Change
    Raw material 47.9% 51.9% 4.01
    Employee 6.0% 6.4% 0.42
    Advertisement 11.9% 9.5% -2.40
    Other expenditure 12.9% 13.0% 0.12
  • Advertisement expenditure declined as the company put off some of its major advertising campaigns to early next quarter in the light of an uncertain business environment in the wake of GST implementation.
  • Employee expenses for the quarter increased as the Marico continued its head hunting process for procuring new quality talent and top-level executives from FMCG companies.
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